Skills

From Stockscores.com:

Skill 1 - The Entry Decision

Having a good strategy for entering a trade is important; the strategy must be well tested through a variety of market conditions and proven to have a positive expected value. That means the strategy is not a gamble, it has rules that make money over a large number of trades. I spend a lot of time reverse engineering the stock market to come up with strategies to find winning trades. However, I don't expect to be right every time, losing on some trades is part of the game

Skill 2 - Risk Management

Since I expect to be wrong some of the time, it is important to do the right thing when I am wrong. That means limiting the size of my losses. There is a tendency for investors to hang on to their losers as they try to avoid the bad feeling that comes with taking a loss. The result is that small, manageable losses turn in to bigger losses that use up both financial and emotional capital. Good traders plan to take losses when the stock they own falls to their stop loss price.

Skill 3 - Scaling

When you catch a strong trade, it is essential to add to your position to get the most out of the trending price move. I always ease in to a stock trade with a relatively small position and then add to that position as the trade proves itself. This minimizes the emotional attachment to the money at risk, since the loss exposure initially is small. If the trade works, adding to the position is easier because we are using gains that have been given to us by the trade.

Skill 4 - The Exit Decision

Most traders sell their winners too early. Since we are going to be wrong some of the time, we have to maximize our gains when we are right. This allows us to cover the inevitable losses and give us the profit we need. The profit is in the patience; let your winners run for you until the market tells you it is time to exit.

Skill 5 - Emotional Control

You can right down as many rules as you want, if you don't have the emotional control to follow the rules, you will not succeed as a trader. This skill is the most difficult to master and typically is the final hurdle for the aspiring trader. The best traders are those who don't care about the money, they are focused on following their trading plan.

One of my more profitable trades this past summer was a short sell of Gold. This trade only lasted a few days but, with good risk management and scaling, provided a nice profit. However, without a tested strategy and emotional control, this profitable trade would never have happened.